ETF Edge - Diversifying your diversification 4/6/26

Episode Date: April 6, 2026

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The EETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange, traded funds, you're in the right place. Every week we're bringing you compelling interviews, thoughtful market analysis and breaking down what it all means for investors.

I'm Dominic Chu. Now, headlines in volatility are here to stay, but maybe it's not too late to diversify or even to, diversify your diversification, so to speak. Here to explain is my conversation with Jeffrey Rosenberg, senior portfolio manager for BlackRock, systematic fixed income, alongside Todd Rosenbluth, director of research over at Vettify. I'm going to kick off this conversation with Jeff first. To talk a little bit about just what kind of growth that you are seeing in the ETF business, given the fixed income tilt that you've had in many parts of your career,

and how it's evolved in terms of not just what you've been doing as a portfolio manager, but how the products have evolved now that they're many in ETF wrappers. Yeah, that's a great question, Dom. It brings me back to a very long history. I joined BlackRock maybe 15 years ago. It was right around the birth and the focus on fixed income ETFs. Fast forward to where we are today, there's been just phenomenal growth, phenomenal acceptance.

And from my vantage point, as an active fixed income portfolio manager, it's really fundamentally changed the ecosystem inside of fixed income markets, particularly products, particularly products like LQD and particularly HG on the credit side. They've just completely changed how liquidity provisioning price discovery, how the ecosystem of credit market making functions in a modern credit market. And it's very much at the source the growth and adoption of ETFs. Has it changed in a way? Has it changed the way you approach the way that you construct portfolios or manage money?

In many ways, it shouldn't, right? Because you're constructing the same types of things, doing the same types of analysis. It's just in a different vehicle by which investors access it. But have you had to evolve alongside? the evolution of these types of products. So there's a couple of elements here because we're talking about, you know, a very big story, the impact of the rise of fixed income, ETFs. So, you know, in one fashion as an active portfolio manager, they're just tools that I can use.

And there's more of those tools. And they give more precision. Another thing that we see, you know, kind of tangentially, but is very important to me as a portfolio manager is the growth of the ETF model ecosystem and how our products feed into what model managers can do and the precision of products that we have delivered and products that we are delivering. And then the third thing, what I was referring to before, it is absolutely changed how we can invest, because particularly when we think about credit markets, high grade, high yield. It's fundamentally changed the way transactions work. You know, 15, 25, 30 years ago,

it was all over the phone, voice intermediated. And you look at today and it looks much more. We're not there yet. It's not the full electronification of credit markets, the way we've seen equity markets evolve. But you're moving down that path. And what that creates is an entirely new way of executing in our credit markets. And it's opening up a lot of alpha opportunities for us. Interesting. So Todd, I mean, does that kind of click with what you are seeing industry-wise in terms of the evolution of fixed-income products and other ones outside of the straight vanilla equity type strategies that are being brought to market? Has that ETF evolution alongside asset classes like fixed income led to kind of more product innovation to a point where we can actually

product being brought to market in such a speedy fashion like we see now? Well, we certainly are. We're seeing growing supply of fixed income ETFs because that demand has been strong. And we've seen strong flows the first three months of 2026. The first couple of months was a bit more risk on. In the month of March, we saw investors rotate out of some of those credit sensitive areas that Jeff was talking about and into short-term government bond ETF. So instead of moving out of the ETF ecosystem, we saw investors take some risk off. We've also seen a growing supply of actively managed fixed income ETS. PIMCO launched a product today. We saw Double line launched a product last week. The BlackRock team has continued to bring new strategies out.

We continue to think there's innovation still to happen within the fixed income index world. And we had VETI, are working on some indices as well, that I think people will find quite exciting, but the ETF system and growth within that ETF ecosystem has made fixed income investing so much more exciting than it was even a few years ago. Todd, can you juxtapose the evolution that we are seeing and the products being brought to market, the AUM that's being gathered by some of these fixed income strategies? Can you put it alongside some of the kind of traditional and maybe even more exotic strategies tied to them with the more equity side of the business? Are we seeing more of that kind of interest

in terms of product innovation now just coming to light for more of that fixed income side of things like we saw maybe with the equity side over the course of the last five to 10 years? So it's certainly happening within the active fixed income space. We've seen growing adoption of those products as investors are seeing the uncertainty as to who the next Fed share is going to be, the next move by the Fed, and they're turning to active managers for support. and those proven asset managers, I mentioned PIMCO and Double Line and BlackRock earlier. I'll add Tiro Price and Fidelity as a couple other firms that have seen success within their active fixed income lineup.

We've really seen the last couple of years growing adoption within that space and growing supply within that space as well. So that's an area that we're certainly focusing on. And then I guess lastly, what we are also seeing is some of those newer categories. So we've seen firms enter with CLO ETFs. Rackner is a firm that's come to market, brought their expertise into the ETF wrapper. CLOs was an area that was less focused on within the ETF wrapper a few years ago, but we've now seen growing adoption, and that's just exciting to give more tools for investors. You know, it's interesting, Jeff, because you've been a fixed income PM for years now.

You don't look it. You look great, but, you know, you've been doing this a long time. One of the main things that I think a lot of investors, especially when it comes to ETFs, are more in tune to now, is the idea that there are so many more hyper-specific strategies or aspects to, say, fixed income that you can use. It used to be just kind of invest in this aggregate bond fund type ETF, and it gives you this kind of passively managed portfolio, you know, diversification element. But now there are so many ETFs and fund strategies that can get you almost like instrument, wise, scalpel-wise, precision with regard to how to construct a portfolio, do you think that that has made general investors out there, whether they be RIAs or whether they be retail investors, have they become more sophisticated? Because using these types of products necessitates a certain

level of sophistication that they haven't had over the course of the last couple of decades. Yeah, I think it's a segmentation answer, that you still have a good portion of the universe out there, you know, traditionalist, traditional fixed income portfolio, even if you go all the way traditional, you know, individual bond buyers in the muni space, when you get into the ETF world, you move into the first kind of adoption of simple index type strategies where I'm going to index my fixed income, and I'm going to focus on my alpha on the equities. But the part that you're talking about, I made reference to it in my earlier answer, the kind of rise of model managers, asset allocators, there is a group of people for whom they don't want to just own the ag and focus on

the equity or the higher risk part of the portfolio. They want to disaggregate the ag. And so a lot of the new products that we've developed, other people are developing, are about empowering financial advisors, model managers to do just that, to give them the kinds of tools that I use as an active manager inside of the ecosystem of ETFs. And that's a segment of the market that we see growing, and developing, we're feeding new products to help them, you know, manage those unique exposures. Now, Jeff, one of the other things that has gotten a lot more traction these days, especially in just maybe the last year or two, has been this concept of liquid alts, you know, these liquid alternative type assets and strategies that are now put into an

ETF wrapper. I wonder if you might be able to take us through, because not everybody can fully understand it, and I'll admit, even I don't. I get a lot of exposure to them. but I'd like to hear from you about just what you think constitutes liquid alts, and what exactly is the thinking behind why people want to seek those types of assets for portfolio diversification purposes in this age? Yeah. Well, let me start with the last question, because that's really what we're dealing with right now,

two major challenges that we see investors grappling with. So we talked about fixed income, and, you know, the great old, adage around fixed income is my bonds go up when my stocks go down. Now, we just went through a period in March with the war risk where we clearly saw again on display that that doesn't hold. And really, we saw it in 2022. And this entire post-COVID environment has really challenged that bedrock principle of the 60-40 portfolio that bonds are diversifying. I would summarize it as the outlook for bond diversification in a higher post-COVID inflationary environment is just much more

uncertain. And so with that uncertainty comes a desire to diversify your diversifiers. And so we've offered that kind of exposure in our 40-act mutual fund, fund that I run systematic multi-strategy fund. But the idea was to bring those types of tools and techniques, the alternative forms of diversification, to the ETF wrapper. That's on the bond side. Let's talk about the challenge that investors are facing on the equity side. And that challenge is incredible concentration. Right. Our equity portfolios have been more and more dominated by the big, large-cap tech winners. And with that concentration is a loss of diversification and a loss of diversification value on the equity side. So liquid alternatives can address both of these challenges to portfolio

construction of a loss of diversification on the equity side, a loss of diversification on the fixed income side. So that's the driver. That's the motivator. Now to get to your question, you know, What are they and how do we characterize them? So liquid alternatives in our assessment in how we define them, they're not alternative asset classes. They're not alternative in the form of private credit or private equity. Those often get lumped into the broader conversation around alternatives, real estate, privates.

What we're really doing is we're bringing the techniques that we've developed in the hedge fund side of our business, which primarily center around market neutral, long, short investing. That's the key kind of aha moment for ETF investors to realize most of what they have exposure to in the ETF ecosystem is some kind of beta exposure. It may be modified beta. It may be precise beta to our earlier conversation, but I'm getting a directional exposure. What liquid alternatives bring to the table is the ability to look at other sources of return. away from just market directionality. And the way in which we do that

and the way in which we extract that additional form of return of what we call alpha, is through this long, short, market neutral investing. And that's really at the core of our liquid alternative suites. Now, Todd, how much demand has there been for these types of products in your mind? As you track the ETF industry overall,

liquid alts was more of a buzz term, if you will, maybe four or five years ago in the post-pandemic era. But now it's become a lot more a part of the vernacular, the lexicon, if you will, around ETF investing, around 40-aq companies. What exactly has been the demand profile for liquid alternative strategies? And what are you seeing people doing with those types of strategies as you see this market evolving? So it's still an emerging category within the ETF space alternatives and then different

slices within alternatives, not just what Jeff was talking about earlier, but What we are seeing is alternatives in the form of autocallable. So Calamos has seen success gathering close to a billion dollars with their product, C-A-I-E. They've got a second-sister product that's come to market. We've seen simplify with a managed futures, ETF, CTA, that's garnered interest. I would consider alternatives, anything that's outside of that traditional equity or fixed-income exposure that you'd get within the S&P 500 or the ag. We were talking on the earlier show about MLPs, and that's an alternative to the equity space. The Illyrian MLP, ETF, AMLP is a good example of alternatives within the equity and equity income space, getting exposure to the energy category.

So overall, this is still relatively small compared to traditional equity, traditional fixed income, but we are seeing advisors looking for something that's going to zag when the market zigs. Now, Jeff, we also, you mentioned hedge fund before, right? And many of these types of strategies, as you point out, are ones that have been traditionally employed by hedge funds over the course of the last two, three, four, five decades. Those types of investors that are in those types of products in the past are now, I guess, able to get them in a vehicle that's more readily available to traditional retail and certain registered investment advisors out there. Is there a, I guess, a change in the way that some of these strategies are viewed in your mind by not just the investing public, by regulators, by everybody else?

Because when you say hedge fund strategies and you make them available to people who are, quote, unquote, non-accredited investors, that seemed to have been a problem in the past, but not so much today, right? Yeah. So one of the key things is the wrapper, right? The ETF wrapper. And so the core of the similarity is the long, short, market neutrality. So I'm long, a set of stocks, a very large, diversified set of stocks. I'm short, another set of stocks. Most of that exposure is going to neutralize out in a market, in a beta sense so that

I'm not taking directional risk. What I'm doing is I'm taking idiosyncratic risk. And the idiosyncratic risk tends to be uncorrelated to market directionality. because I've taken that directionality out. That's an example of what we do in I share systematic alternatives fund, which I'm a co-manager on. We do it across the equity side, the rate side, commodities, FX, fixed income. So you're getting broad diversification of alpha.

The difference to the hedge fund side is we're wrapper aware. We have to be very cognizant of this is daily liquidity. This is a fund where leverage is a consideration. And it's a consideration because we need to think about the liquidity of our underlying markets, and we need to think about the capacity. So the strategies are kind of purpose built and selected for what works within the wrapper. So there's a similarity, but I don't want to say it's an equivalence. It's built for purpose of what the ETF wrapper gives investors.

And there's a trade-off between the liquidity and the capacity for what you get in, say, the Cayman structure within the hedge fund. There you have limited liquidity, much greater tolerance for leverage. Here we have in the ETF wrapper lower leverage, much greater liquidity. And so it customizes the types of asset classes, the types of instruments that we pick into being more liquid part of the markets, more less reliance on illiquidity and leverage than what you see in a typical hedge fund. So one part of that kind of sliding scale, and to bring you back to this,

conversation here, Todd. One part of that sliding scale that we've seen more readily available to us in terms of example in the more recent market developments has been in parts of the market like private credit where there has been a lot of focus on things like liquidity or lack thereof underlying portfolios, the ability to garner some kind of an exit if you want from some of these strategies. I wonder, Todd, if you look at the way that investors have maybe kind of come to this state where they are right now in expecting intraday liquidity in a readily available fashion through the ETF wrapper, is it maybe not as good for certain parts of the market to be exposed to ETFs when you have underlying strategies that may not be conducive to intraday liquidity

on the size and scale that some of these liquid alts are? In other words, have the ETF markets evolve too quickly and maybe caught investors off guard? their ETF-wrapped products that maybe shouldn't be ETF-wrapped products? Well, the ETF products that exist that are tied to private credit are either indirect ways to get exposure. So Simplify as a product, PCR,

that we've talked about on this show beforehand that uses business development companies and closed-in funds to get exposure, so that's adding a different layer of liquidity. Or we've talked about the State Street suite of products that they've got in partnership with a leading provider, Apollo, that they use to get exposure to private credit. But there are limits.

It is a core plus strategy to fixed income. So you still get exposure to traditional fixed income securities in the public markets, and that's the majority of the portfolio as opposed to private credit. But what I do like about the ETF wrapper, or among the things I like about the ETF wrapper, is that we can see discounts to net asset value during times of market stress. And that happens in the emerging market space. That happens in the municipal bond, high yield space in the past, where you can get out. You're just going to pay or you're going to sell at a discount to net asset value.

And if you really need to get out, you use that liquidity. And if you don't, you take enough patience to make sure that the market works in your favor. that's not the same way that it is within getting exposure to private credit on its own. So there's no gating that's happening in the ETF space. You just take a discount. So there's some differences as to what exists today in the ETS space and what exists in other vehicles. All right. And Jeff, one final question to you here.

As you look at the market, the way it's developed, and you look at things like the stresses in private credit, we've seen some high-profile hedge fund type managers talking about the demand or not demise, the downside they could potentially see in places like high yield and elsewhere in the fixed income markets, do you worry about liquidity right now? Is there going to be a situation where you as a macro multi-strategie manager are worried about liquidity constraints? Or do you think that that liquidity constraint is something that people are overly fearful of right now? Well, as a manager of daily liquid, both mutual fund and ETFs, you can never be not afraid. You have to

really manage your liquidity risk profile for the liability, which is daily liquidity. And as Todd said, the price that our clients will pay for that is exacerbated in a stressed environments. You always want to be very careful about that. I think in terms of the macro impact of the particular issues here, there's a, there's sort of an analogy I was thinking about earlier today that, you know, a lot of the stress is related to an unexpected shock. And the unexpected shock is the rise of AI. Its impact on software and software as a service, it's kind of reset terminal values for that segment of the market, and that's creating a lot

of uncertainty. Think about another shock that fundamentally changed our assumptions about a really important part of our economy, and that is the COVID shock and its impact on remote work. Remember, we went through a whole repricing of commercial real estate and office, but there was a long tail to that event because you have maturities and you have debt that have longer maturity. So a lot of what's going on right now in the market is a little bit of a mark to market. A lot of it is a mark to market in terms of terminal value. But a lot of the impact of this will be spread out over a longer period of time. Doesn't mean it won't have a maturity date because a lot of these companies will face refinancing,

just like the debt underlying office companies had to eventually be refinancing. at a higher interest rate with a spread that created some stress. But the point about liquidity is if it's not happening kind of at the moment, right? The real stress in financial crises is the asset liability mismatch, right? It's the run on the bank, whether it's the old-fashioned 19th century run on the bank or the 20th century run on the bank that we experienced in 2008. When you have that kind of asset liability mismatch, that creates a much bigger liquidity strain. And part of what we're seeing in private credit is the assertion of the proper matching of the

liquidity. You're gating because you said we can't have a run on the bank. And that may be misunderstood and disappointing, but it is helping to prevent the broader spread of a liquidity shock or concern into the broader markets that I may be looking at vis-a-vis what we may have seen in these prior financial crisis. And that's the key difference is that lack of the asset liability. Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Jeffrey Rosenberg, senior portfolio manager for BlackRock Systematic Fixed Income continues with us now. Jeff, thank you very much for sticking around for the podcast.

I'd like to kind of jump off maybe with a little bit of what we touched on during the online show, but that we didn't get to fully explore. And that is this move or evolution of fixed income markets, vis-a-vis the ETF wrapper, to go beyond just passive index, aggregate bond index type related investments, into kind of more hyper-specific, actively managed funds where managers are actually trading in and out of certain types of securities. There is, as maybe one would expect, a middle ground

for some of those types of things as well. Can you take us through the differences from a portfolio manager's perspective about the passive side of things, the active side of things, and kind of like that gray area in between? Yeah, so I've been an active manager my whole career,

but I worked very closely at BlackRock with the development, as we talked about on the show, the development of ETFs, which really started with index exposures and access and liquidity. You think about the same. success of a product like H. YG, it's a liquidity vehicle more than anything else and phenomenally successful and important in that role. But we started to then think about how

could we get another kind of exposure into the market? And that was the development around active. And that was really kind of taking what active managers like myself have done for generations and just putting it into the ETF wrapper. And that has some appeal. But from an ETF index investors perspective, it loses a lot of the attractions of the ETF Rappair, transparency, predictability, and low cost, kind of all got sacrificed on the altar of the PM active management ecosystem that got ported into the ETF land. So think of this as a little bit of kind of a clash of cultures, if you will. And as somebody who's kind of straddled both of those cultures, the ETF I shares in my own experience, but having come to BlackRock from the

active side, what we tried to find within my group, which is BlackRock systematic, which is the systematic, quantitative investing oriented group, not the fundamental group, but the systematic group lends itself really well to this middle road, because what do we do in systematic investing? We codify our insights, and we codify them into rules, based investing. And that creates this middle layer we call systematic enhanced indexing. So it's, it's not index where the goal of the index is to just replicate the market portfolio. It has some selection rules based on liquidity and kickout rules based on maturity. But it's not full active where it's just Jeff Rosenberg's whim on a day to day and how am I swing in the

bat and I'm swinging for a home run or am I swinging for single? I'm still swinging, and the portfolio is moving around so much, you don't really have that transparency and predictability. So that middle road is to take some of those active insights, some of the things that are durable, repeatable, reliable forms of outperformance against the active, sorry, against the passive benchmark, but codify them into a set of rules that basically makes the functioning of the systematic enhanced index look more like index. And in terms of its transparency, predictability, and also a lower cost base. How did you come up with the rules?

And obviously, you know, there's a secret sauce element to this. There's a bunch of research and historical simulation backtesting that you kind of look through to kind of figure out what has kind of worked in the past, what could rhyme or work in the future, and then how you develop rules or constructs for parameters, right? reaching certain types of criteria that involve inclusion of some asset and exclusion of others. That is this middle ground that you are talking about, as opposed to whims of a manager, no whims at all in an index, and then something that's in between. What exactly goes into constructing the rules,

and what exactly then leads you to believe that those rules are sound and can replicate past performance sometime in the future? knowing full well in this business, you can't guarantee any kind of future performance. It's a great question. And to answer it, we have to start with the foundation of our investment process as systematic investors. So because we start from a systematic investing perspective, what that means is our investment process is governed by models. As much as it's governed by me as the PM, really the difference between the fundamental approach is the PM is central to the decision making central to the investment process.

What we do is we take those insights from my head and lots of BMs that came before me. We codify them into a model and we put the model into the center of the investment process. That for systematic enhanced indexing is a necessary and critical step. You couldn't go from full discretionary active management and then somehow come up with rules

to codify that because the rules don't exist. They're in the whims of the head of the PM. So because our systematic active process, even before we get to the ETF index process, has that systematic model-based approach at the center, it gives us a starting off point that makes it much easier to answer your question of, okay, now that we have systematized these ideas of how do we take views, how do we implement security selection? collection, how do we do duration, credit, curve, management, all of that's been systematized into a model. Then the next step to get that into an enhanced index approach is, okay, how can we take this model and then

write it in the form of index rules? It's actually that latter piece is a much easier problem to solve because we've already solved the first piece, which is systematizing our ideas and our alpha. Now, the systematizing of these types of things works, for the most part, in a controlled laboratory environment, right? When you're kind of putting these things together under normal situations, normal circumstances, normal liquidity profiles and everything else in a quote-unquote normally functioning market. These days, markets have, I mean, to be fair, there hasn't been a massive, massive kind of liquidity-driven or kind of systematic failure-type process. in quite some time. You know, the COVID pandemic aside and kind of what we saw because of a forced voluntary shutdown of the global economy.

But this day and age, there are different types of issues that are manifesting themselves in the marketplace. I had alluded to private credit in our conversation prior on the show. We got some comments from Jamie Diamond, the CEO, J.P. Morgan Chase, you know, in his kind of big letter out there to people kind of talking a little bit about everything in the markets right now. And one of the things that stood out to me was that at this point, you know, Jamie Diamond doesn't think that the private credit issues that we're seeing right now are systemic in nature, that they could lead to some kind of wider spread issue. From a fixed income portfolio manager, from a systematic fixed income macro portfolio manager's perspective, do you feel like there are issues right now that you would be a little bit more wary of?

or do we think that maybe many of these headlines around credit risks, private credit specifically, are idiosyncratic, as you point out for certain parts of the market, and not systematic and systemic in nature across the broader markets overall? So there's two parts to that question. One is on the private credit impact, but the first one I want to come back to, which is more on kind of like how do you formulate systematic rules-based enhanced index in light of market challenges like COVID. And the answer is we've run these products through multiple cycles.

And we've learned how do you build into the rules enough resilience to manage through those types of periods. So there's a lot of work done on liquidity, which we're going to get to in that second part of your question, definition of, what assets go in, what assets go out, thinking about triggers for transactions, cost, minimization. So it's not just thinking about the alpha and the insights that we're codifying. It's also thinking about how to make that practical when faced with the challenges of a market. And the final point that I would say is that it's not completely on autopilot. I'm a portfolio manager on these funds. There's co-pMs on these funds.

we're overseeing the process, and it's kind of like what we talk about in AI. It's the human in the loop, where there's someone playing the safety valve if there was something that we might have overlooked in the definition. A human driver for your Waymo cab. There we go.

There we go. We're not pulling the humans out of the portfolios quite yet. But what we are pulling out, which is really kind of important, what we're trying to pull out, what is the advantage of the systematic approach, is to try to take out a lot of that emotion, take out a lot of the swings in the portfolio,

take out the unpredictability. If I may, there's two funds, particularly to highlight in the space. One is in the credit space, H-Y-D-B. You know, what does it do? It uses the insights that we've developed over 20-year history in systematic credit investing, but codifies them. And there are insights that make a lot of sense to any type of investor.

I want to look at quality companies and I want to look at quality companies that have value in terms of their pricing. And it turns out if you build screens on those two factors, on those two characteristics, you ask, how do you know that it's going to work? Well, we have some insight. The insights have sensibility.

Quality companies outperform over the long run. But if I only emphasize quality, I tend to underperform, particularly in up markets, because I'm overpaying for quality. So by balancing that out with value, the balance and the interaction between those two characteristics helps to give a portfolio in security selection really good balance across different types of market environments.

And both when we built those models, we back-tested them, but more importantly, a fund like HIDB has over an eight-year track record of out-of-sample experience. A more recent fund that we just relaunched is called Systematic Bond, CISB, SISB, it takes in some of the security selection insights from HIDB. We have an investment grade version IGB, similar to what we do on the high yield side. But it adds to it some very simple duration management and some credit risk management insights that have held up overtime.

What are those insights? Particularly that credit is very regime aware. Now I'm going to get back into your question on private credit. But what we know is that the performance of credit links to the performance of the economy. And while we aren't so great at forecasting, what we often say is that if you can't forecast, then observe. And it's much easier to observe the regime that you're in and then alter the portfolio for that regime. Over time, that tends to lead to better outcomes.

And by systematizing it, you kind of take away some of the emotion around it. Now to your question on private credit and liquidity. So look, I've been a credit investor for a very long time. I started on the sell side as chief credit strategist, have followed credit markets, have been through multiple credit cycles. And what's really important as an investor to just anchor yourself to is this concept of the credit cycle. The credit cycle, kind of related to the business cycle, but it has its own unique characteristics. But it is always there.

And we're always part and parcel of a credit cycle. And if you anchor yourself to that, then you're reminded that credit cycles come and go. They have different phases. This cycle in particular is really quite unique. It's been one of the longest, most extended credit cycles that really goes back to the post-GFC 2008 environment. And there are a lot of reasons for that, but one big one is the fundamental shift in liquidity that we saw from not only the Fed, but global central banks. And liquidity to your question is really central to the, you know, is really central to the. credit cycle because you have the liquidity cycle. And so when liquidity comes into a market,

it increases the issuance of credit. It becomes self-reinforcing because the more access to liquidity, because what is the ultimate catalyst for default? It's the loss of liquidity. So when I bring a lot of liquidity into the market, first the Fed and global central banks brought that liquidity in, then investors brought the liquidity in, it becomes powerfully self-reinforcing. But liquidity cycles can go the other way as well. And that's why the liquidity and the liquidity trigger that we talked about before, understanding where those mismatches are or critically in this cycle where they're not, is key to sort of identifying what are the triggers this time round. It seems different. You seem like, it seems like we've built better, more resilient

structures relative to what we saw in the 08 environment. Credit cycles always begin from the outside in. There's some recent high issuing sector of the market. You go back to 2000, 2001, earlier in the 90s. You had theaters. Then you had the original telecom media and technology concentration during that earlier internet wave. And now you've got a sectoral concentration risk existing because of software.

But we're so wedded to the systemic risks of COVID, and then the GFC before that, that we often sort of leap from a sectoral or a syncratic concern to a systemic crisis. I don't see those factors yet, maybe famous last words, but this is like other cycles, other credit cycles that begin with a sectoral piece

could then trigger potentially more liquidity, raising the price of liquidity, that then spreads that to other parts of the credit markets. One final question for you. and it's not one that's easily answered, but we're going to try to get you to kind of answer it the best you can. In your mind, what would you see or need to see to make you feel less comfortable

about the kind of part of the credit cycle that we are in? In other words, what are we looking for to say that, you know what, there could be a deeper credit-related crisis or a downturn in that cycle that we are not yet seeing, but are maybe seeing some tea leaves of right now? Yeah, there's a couple of things. I mean, do you see more linkages than people are currently sort of pointing to, right? That was the issue in the GFC.

The GFC was we clearly had an issue with subprime. People didn't understand the linkages and how important those linkages were. I spent the first part of that my career explaining to people the linkages. You don't see quite the same degree of linkages, but that would be a concern. You know, people talk about shadow banking and make that analogy. It's very different because you have to see the connections between that create the spreads. That's one consideration. The broader one is just the economics, right?

An economic slowdown, a broader shock to the economy, and really fundamental erosion. That is erosion in the ability to service credit and credits is the concern. maybe Dom, I just want to maybe leave us one second to come back to our Liquid Alt conversation that we started on. And I think here, you know, the point for investors and ETF investors is really seeing innovation in the ETF landscape. We talked a lot about the importance on the fixed income side of ETF innovation. This is ETF innovation now happening within the alternative space, but not the alternative asset class or alternative private, but alternative strategies. And so what investors are getting access to in these types of strategies for the first time is really

the full breadth array of alternative investment strategies. Now, we run a systematic trend fund as well, which we launched. I'm a co-PM on it. Systematic trend has been around for a long time, and we now have four or five ETFs in that space. We got into that space because it was kind of the first, well-understood liquid alternative strategy. But you look at what we're doing in I-Ault, and it's going way beyond that kind of capacity for generating alternative forms of returns that's diversified from your fixed income

and your equity returns. That's what's really attractive about what we're doing in I-A-LT. No one else is doing that. There are all their liquid alternatives in the asset class, but they're more traditional, either alternative asset class, like Todd mentioned, like MLPs or REITs. Those are asset class alternatives. Or systematic trend, which is a particular subcategory,

we're going far beyond that and giving alpha opportunities across the breadth of equities, commodities, fixed income, FX, and that provides a diversified source of returns. And we talked about in the earlier segment is just so important in the more challenged environment for diversifiers today. More and more options for people to diversify their diversify their diversification.

Jeffrey Rosenberg, thank you so much for taking the time. We really appreciate it. Great. Thanks, Tom. Thanks, Tom. All right, that was Jeff Rosenberg over at BlackRock.

That does it for the ETF Edge podcast. Thanks so much for listening. Join us again next week or just head over to etfedge.cmbc.com. Over the last few decades, technology has transformed our world in amazing ways. Through it all,

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